Competition Heralds Beginning of Bio-Generics

There is very little competition in the biopharmaceutical sector. With the introduction of generic forms of human growth hormone, can managed care get a lower price?

February 1, 2005

Thomas Morrow, MD

The holy grail of managing the explosion of the biologic drugs may well be signaled by the the availability of generic biologics. The FDA does not have a process in place to approve biogenerics (also called follow-on biologics) and is not expected to develop the final guidelines until 2007 or later. This is of keen interest to managed care and other payers as billions of dollars are currently spent on drugs whose patents will expire (barring legal extensions) before 2007. These drugs include Humulin, Intron A, Procrit, Epogen, and Neupogen. The global market for biogenerics is predicted to reach $12 billion by 2010.

The crux of the FDA quandary is that for biologics, the process by which a biologic drug is produced is part of the original approval, along with the actual drug product. It is difficult to produce a biologic drug without using proprietary processes. In addition, the FDA requires companies that manufacture biogenerics to prove that they are as safe and effective as the branded counterpart.

The FDA started the process of creating regulations for these biogenerics in 2004. Australia, another regulated market, recently approved the first biogeneric, Omnitrope, a human growth hormone, paving the way for regulators in other countries. The European Union completed an approval process that is expected to take effect in late 2005.

Extending patent protection

The manufacturers of biologic products are attempting to protect their intellectual property in a number of ways. One is an attempt to convince the FDA of the need to be cautious in the development of regulatory requirements and to require the same expensive, rigorous testing that was used for the original product.

Another strategy is something called "evergreening" — developing an improved version of a product that extends the patent protection and in many cases offers improved long-term outcome. Examples are the development of pegylated interferons for hepatitis C and pegylated erythropoeitin for the anemia.

A third strategy is to license an authorized generic product.

The good news is that consumers and payers don't have to wait until the FDA sorts out its policy for multisource biologics. Such is the case of human growth hormone (hGH). Gate Pharmaceuticals, a division of Teva Pharmaceuticals USA, recently announced the launch of a lower cost, branded hGH. This product, named Tev-Tropin, was licensed by Gate a few years ago. It is not a generic, but a branded product that will be sold at a reduced price. It is human growth hormone, a 191-amino-acid protein, and has an amino acid sequence identical to the growth hormone flowing through our veins. It is indicated for inadequate secretion of endogenous growth hormone in children. About 1 in 4,000 school-age children has this deficiency.

All of the human growth hormone products on the market have amino acid sequences that are identical to naturally occurring hGH. Products are differentiated by vial size, by whether they are premixed or reconstituted product, by administrative technology, and by approved indications. Several manufacturers have received approval for additional indications, including Prader-Willi syndrome, idiopathic short stature (ISS), chronic renal insufficiency, and Turner's Syndrome.

The total global market for growth hormone is estimated to be nearly $1.4 billion with a U.S. market of over $600 million. The Gate product has FDA approval only for inadequate secretion of endogenous growth hormone in childhood and it is available in only one formulation, a 5 mg vial. Although these differences appear minor, they are not to be taken lightly by managed care. It appears that despite some differences in price among the existing products, the two manufacturers with the largest market share (Pfizer and Lilly) produce the more expensive products.

Gate, a relatively unknown player in the U.S., is affiliated with the largest generic manufacturer in the world, Teva, headquartered in Israel. Gate is launching this product in a crowded market that already contains five major manufacturers. Gate's pricing approach is a bit different in that it follows the strategy of its parent company: Sell a safe and efficacious product for less.

Details of Gate's pricing and terms have not been announced, but are expected to be available very soon. In addition, the company will provide an emphasis on service to both the patient and the family as well as to the prescribing physician.

But for the consumer to benefit from a lower priced human growth hormone, managed care decision-makers must take action.

First, it is important that MCOs understand that prescriptions for hGH written by pediatric endocrinologists normally identify a brand product.

MCOs that recognize this fact will provide incentives to members to choose a less expensive alternative using a preferred formulary approach, i.e., tiering the copayment or coinsurance. This produces a win-win for the patient and health plan. More progressive plans will want to consider assigning this product a "generic" copayment level.

Rebates and discounts

When plans place traditional medications in a tier favorable to the manufacturer, they can receive incentives such as rebates and discounts. These rebates are based upon market share and the number of drugs in a preferred category. This process has for the most part not been available for the biologics. Because there is little competition in general in the biopharmaceutical industry, this practice has been slow to catch on.

If MCOs develop and implement tiered formularies and preferred products, the rebates and discounts are sure to follow. However, the rebates must in some way be passed on to the ultimate payer — the employer and patient — and not be absorbed by the manufacturer as extra profit.

Most categories contain only one product or a set of products so unlike other products that they do not actually compete for formulary placement. However, for hGH as well as a few other products, competition does exist because the hGH drugs are just about indistinguishable.

Even so, competition can be used by managed care to establish prices.

Mixed success

Some early adopters of aggressive biopharmaceutical management at MCOs have been pursuing discounts and other favorable terms from manufacturers, with mixed success. In general, the biopharmaceutical manufacturers have not been driving or supporting of this trend. Gate now has provided us with an excuse to re-evaluate this strategy by starting a competitive environment.

Whether Gate moves forward with other products in the near future depends in part upon the FDA. But Gate, through its licensing arrangement, has now allowed at least hGH to be made available at a more acceptable price for consumers and payers and that allows patients to have easier access to tomorrow's medicines.

Thomas Morrow, MD, is president of the National Association of Managed Care Physicians and vice president and medical director of Matria Health Care. He has 20 years of managed care experience at the payer or health plan level.